principal global technology fund...manager : principal asset management berhad (304078-k) (formerly...

54
Information Memorandum 31 December 2019 Principal Global Technology Fund (formerly known as CIMB-Principal Global Technology Fund) Manager : Principal Asset Management Berhad (304078-K) (formerly known as CIMB-Principal Asset Management Berhad) Trustee : Deutsche Trustees Malaysia Berhad (200701005591 (763590-H)) THIS IS A REPLACEMENT INFORMATION MEMORANDUM. THIS INFORMATION MEMORANDUM IS ISSUED TO REPLACE AND/OR SUPERSEDE THE INFORMATION MEMORANDUM OF THE CIMB-PRINCIPAL GLOBAL TECHNOLOGY FUND DATED 17 MAY 2018. This Information Memorandum Issue No. 2 for the Principal Global Technology Fund is dated 31 December 2019. The Fund was constituted on 8 May 2018. SOPHISTICATED INVESTORS ARE ADVISED TO READ AND UNDERSTAND THE CONTENTS OF THE INFORMATION MEMORANDUM. IF IN DOUBT, PLEASE CONSULT A PROFESSIONAL ADVISER. THIS FUND IS A MULTI-CLASS FUND AND IS ALLOWED TO ESTABLISH NEW CLASS(ES) FROM TIME TO TIME AS MAY BE DETERMINED BY THE MANAGER.

Upload: others

Post on 06-Feb-2021

1 views

Category:

Documents


0 download

TRANSCRIPT

  • Information Memorandum31 December 2019

    Principal Global Technology Fund(formerly known as CIMB-Principal Global Technology Fund)

    Manager : Principal Asset Management Berhad (304078-K) (formerly known as CIMB-Principal Asset Management Berhad)

    Trustee : Deutsche Trustees Malaysia Berhad (200701005591 (763590-H))

    THIS IS A REPLACEMENT INFORMATION MEMORANDUM. THIS INFORMATION MEMORANDUM IS ISSUED TO REPLACE AND/OR SUPERSEDE THE INFORMATION MEMORANDUM OF THE CIMB-PRINCIPAL GLOBAL TECHNOLOGY FUND DATED 17 MAY 2018.

    This Information Memorandum Issue No. 2 for the Principal Global Technology Fund is dated 31 December 2019.

    The Fund was constituted on 8 May 2018.

    SOPHISTICATED INVESTORS ARE ADVISED TO READ AND UNDERSTAND THE CONTENTS OF THE INFORMATION MEMORANDUM. IF IN DOUBT, PLEASE CONSULT A PROFESSIONAL ADVISER.

    THIS FUND IS A MULTI-CLASS FUND AND IS ALLOWED TO ESTABLISH NEW CLASS(ES) FROM TIME TO TIME AS MAY BE DETERMINED BY THE MANAGER.

  • i

    ABOUT THIS DOCUMENT This is an information memorandum which introduces you to Principal Asset Management Berhad (formerly known as CIMB-Principal Asset Management Berhad) Principal Malaysia and the Principal Global Technology Fund , which is a wholesale fund. This Information Memorandum outlines in general the information you need to know about the Fund and is intended for the exclusive use by prospective Sophisticated Investors (as defined herein) who should ensure that all information contained herein remains confidential. The Fund is established with a multi-class structure and has more than one (1) class. This Information Memorandum is strictly private and confidential and solely for your own use. It is not to be circulated to any third party. No offer or invitation to purchase the units of the Fund, the subject of this Information Memorandum, may be made to anyone who is not a Sophisticated Investor. If you have any questions about the Fund, please contact our Customer Care Centre at 03-7718 3000 between 8:45 a.m. and 5:45 p.m. (Malaysia time) on Mondays to Thursdays and between 8:45 a.m. and 4:45 p.m.(Malaysia time) on Fridays (except on Selangor public holidays). Unless otherwise indicated, any reference in this Information Memorandum to any rules, regulations, guidelines, standards, directives, notices, legislations or statutes shall be reference to those rules, regulations, guidelines, standards, directives, notices, legislations or statutes for the time being in force, as may be amended, varied, modified, updated, superseded and/or re-enacted from time to time. Any reference to a time, day or date in this Information Memorandum shall be a reference to that time, day or date in Malaysia, unless otherwise stated. Information Memorandum will be taken to mean calendar days unless otherwise stated. As the base currency of the Fund is USD, please note that all references to currency amounts and NAV per unit in the Information Memorandum are in USD unless otherwise indicated.

    YOU SHOULD RELY ON YOUR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. IF YOU ARE IN DOUBT, PLEASE CONSULT YOUR PROFESSIONAL ADVISERS IMMEDIATELY.

  • ii

    DEFINITIONS Except where the context otherwise requires, the following definitions shall apply throughout this Information Memorandum:

    Application Fee - Preliminary charge on each investment.

    AUD - Australian Dollar.

    Business Day - Mondays to Fridays when Bursa Malaysia Securities Berhad is open for trading, and banks in Kuala Lumpur and/or Selangor are open for business. In respect of the Target Fund, it means a day on which the stock exchange in Luxembourg is open for business.

    Note: We may declare certain Business Days to be a non-Business Day if the jurisdiction of the Target Fund declares a non- -dealing day. This information will be communicated to you via Principal Malaysiahttp://www.principal.com.my.

    CIMB Group - CIMB Group Sdn. Bhd.

    CIS - Means collective investment schemes.

    Class - Any Class of units representing similar interests in the assets of the Fund.

    Class AUD-Hedged - The Class of units issued by the Fund denominated in AUD that aims to minimize the effect of exchange rate fluctuations between the base currency of the Fund (i.e. USD) and AUD.

    Class GBP-Hedged - The Class of units issued by the Fund denominated in GBP that aims to minimize the effect of exchange rate fluctuations between the base currency of the Fund (i.e. USD) and GBP.

    Class MYR-Hedged - The Class of units issued by the Fund denominated in MYR that aims to minimize the effect of exchange rate fluctuations between the base currency of the Fund (i.e. USD) and MYR.

    Class SGD-Hedged - The Class of units issued by the Fund denominated in SGD that aims to minimize the effect of exchange rate fluctuations between the base currency of the Fund (i.e. USD) and SGD.

    Class USD - The Class of units issued by the Fund denominated in USD.

    CMSA - Capital Markets and Services Act 2007.

    Company - Franklin Templeton Investment Funds.

    Deed - The principal deed and any supplemental deed in respect of the Fund made between us and the Trustee, in which Unit holders agree to be bound by the provisions of the Deed.

    Deposit - the Islamic Financial Services Act 2013.

    Note: To exclude structured deposits.

    Distributors - Any relevant persons and bodies appointed by us from time to time, who are responsible for selling the units of the Fund, including Principal Distributors and IUTAs.

    FIMM - Federation of Investment Managers Malaysia.

    Fund or GTECH - Principal Global Technology Fund (formerly known as CIMB-Principal Global Technology Fund).

    GBP - Great Britain Pound.

    Information Memorandum

    - Refers to the information memorandum in respect of the Fund and includes any supplemental information memorandum or replacement information memorandum, as the case may be.

    IUTA - Institutional Unit Trust Scheme Adviser.

    KIID - Key Investor Information Document.

    LPD - Latest Practicable Date, i.e. 31 October 2019, in which all information provided herein, shall remain current and relevant as at such a date.

    Management Company - Franklin Templeton International Services S.à r.l.

    Management Fee - A percentage of the NAV of the Class that is paid to us for managing the portfolio of the Fund.

    MCR - Multi-class ratio, being the apportionment of the NAV of each Class over the based on the size of each Class. The MCR is calculated by dividing the NAV of the respective Class by the NAV of the Fund before income and expenses for the day. The apportionment is expressed as a ratio and calculated as a percentage.

    Member State - A member state of the European Union.

    Money market instruments

    - The investment in money market:

    (a) has a maturity at issuance of up to and including 397 days; or

    (b) has a residual maturity of up to and including 397 days.

    NAV - Net Asset Value.

    NAV of the Fund - liabilities, at the point of valuation. For the purpose of computing the annual Management Fee and annual Trustee Fee, the NAV of the Fund should be inclusive of the Management Fee and Trustee Fee for the relevant day. The NAV of a Class is the NAV of the Fund attributable to a Class at the same valuation point.

    NAV per unit - The NAV attributable to a Class of units divided by the number of units in circulation for that Class, at the valuation point.

    http://www/

  • iii

    OTC - Over-the-counter.

    PFG - Principal Financial Group and its affiliates.

    PIA - Principal International (Asia) Ltd.

    Principal Distributors - Refers to the unit trust consultants of Principal Malaysia.

    Principal Malaysia or the Manager

    - Principal Asset Management Berhad (formerly known as CIMB-Principal Asset Management Berhad).

    Prospectus - Refers to the prospectus in respect of the Company and includes any supplemental prospectus, addendum or replacement prospectus, as the case may be. The Prospectus is available on Franklin Templeton website at https://www.franklintempletongem.com/.

    RM or MYR - Malaysian Ringgit.

    SC - Securities Commission Malaysia.

    SC Guidelines - SC Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework.

    SGD - Singapore Dollar.

    Sophisticated Investor - Refers to investors as we determine as qualified or eligible to invest in the Fund and that fulfil any laws, rules, regulation, restregulators where the Fund is open for sale. For investors in Malaysia, this refers to any person who falls within any of the categories of investors set out in Part 1, Schedules 6 and 7 of the CMSA.

    Note: For more information, please refer to our website at http://www.principal.com.my for the current excerpts of Part 1, Schedules 6 and 7 of the CMSA.

    Special Resolution - A resolution passed by a majority of not less than three-fourth (3/4) of the Unit holders of the Fund or a Class, as the case may be, voting at a meeting of Unit holders duly convened and held in accordance with the provisions of the Deed and representing at least three-fourth (3/4) of the value of the Units held by Unit holders of the Fund or a Class, as the case may be, voting at the meeting (whether in person or by proxy) duly convened and held in accordance with the provisions of the Deed.

    Switching Fee - A charge that may be levied when switching is done from one (1) fund or class to another.

    Target Fund - The CIS that the Fund invests predominantly in. Currently, it refers to Franklin Technology Fund.

    Target Fund Investment Manager

    - Franklin Advisers, Inc.

    Transfer Fee - A nominal fee levied for each transfer of units from one (1) Unit holder to another.

    Trustee - Deutsche Trustees Malaysia Berhad.

    Trustee Fee - A percentage of the NAV of the Fund that is paid to the Trustee for its services rendered as trustee for the Fund.

    UK - United Kingdom.

    Unit holder - The registered holder for the time being of a unit of any Class including persons jointly registered.

    US or USA - United States of America.

    USD - United States Dollar.

    Wholesale Fund - A unit trust scheme established in Malaysia where the units are to be issued, offered for subscription or purchase, or for which invitations to subscribe for or purchase the units are to be made, exclusively to Sophisticated Investor.

    Withdrawal Fee -

    A charge levied upon withdrawal under certain terms and conditions (if applicable).

    Note: Unless the context otherwise requires, words importing the singular number should include the plural number and vice versa.

  • iv

    TABLE OF CONTENTS DEFINITIONS ..................................................................................................................................................................................... ii 1. FUND INFORMATION ............................................................................................................................................................. 1

    1.1. PRINCIPAL GLOBAL TECHNOLOGY FUND ................................................................................................................... 1 1.2. PERMITTED INVESTMENTS ........................................................................................................................................... 2 1.3. INVESTMENT RESTRICTIONS AND LIMITS ................................................................................................................... 2 1.4. APPROVALS AND CONDITIONS .................................................................................................................................... 2 1.5. BORROWINGS OR FINANCING ..................................................................................................................................... 3 1.6. SECURITIES LENDING ................................................................................................................................................... 3 1.7. RISK FACTORS ............................................................................................................................................................... 3

    2. TARGET FUND INFORMATION ............................................................................................................................................... 6 2.1. ABOUT FRANKLIN TECHNOLOGY ....................................................................................... 6

    2.2. INVESTMENT AND BORROWING RESTRICTIONS OF THE TARGET FUND ................................................................. 7

    2.3. DILUTION ADJUSTMENT/ SWING PRICING ................................................................................................................ 16 2.4. TEMPORARY SUSPENSION ......................................................................................................................................... 16 2.5. TARGET FUND SOFT CLOSURE .................................................................................................................................. 17 2.6. SPECIFIC RISKS OF THE TARGET FUND ..................................................................................................................... 17 2.7. FEES CHARGED BY THE TARGET FUND (CLASS I USD) ............................................................................................. 17

    3. FEES, CHARGES AND EXPENSES ......................................................................................................................................... 18 3.1. CHARGES ..................................................................................................................................................................... 18 3.2. FEES AND EXPENSES .................................................................................................................................................. 18 3.3. REBATES AND SOFT COMMISSIONS .......................................................................................................................... 20

    4. TRANSACTION INFORMATION ............................................................................................................................................ 21 4.1. VALUATION OF INVESTMENTS PERMITTED BY THE FUND ...................................................................................... 21 4.2. UNIT PRICING .............................................................................................................................................................. 21 4.3. INCORRECT PRICING ................................................................................................................................................... 23 4.4. INVESTING ................................................................................................................................................................... 23 4.5. MINIMUM INVESTMENTS ............................................................................................................................................ 24 4.6. MINIMUM WITHDRAWALS .......................................................................................................................................... 24 4.7. MINIMUM BALANCE .................................................................................................................................................... 25 4.8. COOLING-OFF PERIOD ................................................................................................................................................ 25 4.9. SWITCHING .................................................................................................................................................................. 25 4.10. TRANSFER FACILITY .................................................................................................................................................... 26 4.11. TEMPORARY SUSPENSION ......................................................................................................................................... 26 4.12. DISTRIBUTION PAYMENT ........................................................................................................................................... 26 4.13. UNCLAIMED MONEYS ................................................................................................................................................. 26

    5. ADDITIONAL INFORMATION ................................................................................................................................................ 27 5.1. FINANCIAL YEAR-END ................................................................................................................................................. 27 5.2. INFORMATION ON YOUR INVESTMENT ..................................................................................................................... 27 5.3. TERMINATION OF FUND AND/OR ANY OF THE CLASSES ......................................................................................... 27 5.4. RIGHTS, LIABILITIES AND LIMITATIONS OF UNIT HOLDER ....................................................................................... 27

    5.5. DOCUMENTS AVAILABLE FOR INSPECTION .............................................................................................................. 28 5.6. POTENTIAL CONFLICTS OF INTERESTS AND RELATED-PARTY TRANSACTIONS .................................................... 28

    5.7. INTERESTS IN THE FUND ............................................................................................................................................ 29 5.8. .......................................................................................................................... 29

    6. THE MANAGER ...................................................................................................................................................................... 30 6.1. ABOUT PRINCIPAL ASSET MANAGEMENT BERHAD .................................................................................................. 30

    7. THE TRUSTEE ........................................................................................................................................................................ 31 7.1. ABOUT DEUTSCHE TRUSTEES MALAYSIA BERHAD .................................................................................................. 31

    ANNEXURE CLASS USD ............................................................................................................................................................... 32 ANNEXURE CLASS AUD - HEDGED.............................................................................................................................................. 35 ANNEXURE CLASS GBP - HEDGED .............................................................................................................................................. 38 ANNEXURE CLASS MYR - HEDGED .............................................................................................................................................. 41 ANNEXURE CLASS SGD- HEDGED ............................................................................................................................................... 44

  • 1

    1. FUND INFORMATION

    1.1. PRINCIPAL GLOBAL TECHNOLOGY FUND

    Fund Category/Type : Feeder fund/ Growth.

    Investment Objective : The Fund aims to provide capital appreciation through investments in one collective investment scheme, which invests primarily in a diversified portfolio of technology related companies.

    We will require your approval if there is any material change to the F

    Benchmark : The Fund adheres to the benchmark of the Target Fund for performance comparison. The benchmark of the Target Fund may be found on KIID of the Target Fund available on www.ftidocuments.com. Alternatively, kindly refer to the product highlights sheet of the Fund for the current benchmark of the Target Fund.

    Distribution Policy : The distribution policy of each of the Class may differ. Please refer to the Annexure of the respective Class for more information. You may also refer to page 26 for information on the distribution payment.

    Base Currency : USD

    Classes of the Fund Please note that the Fund is established with a multi-class structure where the Deed allows for the establishment of more than one (1) Class with similar interests in the assets of the Fund. You should note that the Fund is allowed to establish new Class(es) from time to time without your prior consent. Under the Deed, Unit holders of each Class have materially the same rights and obligations. Each Class may be different in terms of currency denomination, fees and charges, and hence, will have its respective NAV per unit, denominated in its respective currency taking into account the aforementioned features. Although the Fund has multiple Classes, Unit holders should note that the assets of the Fund are pooled for investment purpose. Currently, the Classes below are available for sale. Please refer to the Annexure for further details on the Classes. You should note that we have the discretion to decide on the offering of other classes for sale in the future. This information will be communicated to you via our website at http://www.principal.com.my. When in doubt, you should consult professional advisers for better understanding of the multi-class structure before investing in the Fund.

    Name of Class Launch date Initial offer period Initial offer price per unit

    Class USD 17 May 2018 N/A USD 1.0000

    Class AUD-Hedged 17 May 2018 N/A AUD 1.0000

    Class GBP-Hedged 17 May 2018 N/A GBP 1.0000

    Class MYR-Hedged 17 May 2018 N/A MYR 1.0000

    Class SGD-Hedged 17 May 2018 N/A SGD 1.0000

    Investment Policy and Principal Investment Strategy The Fund is a feeder fund and it invests in a single CIS, i.e. Franklin Technology Fund. The Fund may also invest in liquid asset for liquidity purpose. In order to achieve its investment objective, the Fund will invest at least 95% of its NAV in the Target Fund; a portfolio established on 4 March 2000 under the Franklin Templeton Investment Funds. The Fund will also maintain up to 5% of its NAV in liquid assets for liquidity purposes. The Fund will be actively rebalanced from time to time to meet sales and withdrawals transactions. This is to enable a proper and efficient management of the Fund. As this is a feeder fund that invests predominantly in the Target Fund, we do not intend to take temporary defensive position for the Fund during adverse market, economic and/or any other conditions. This is to allow the Fund to mirror the performance of the Target Fund in either bullish or bearish market conditions. However, the Target Fund Investment Manager may take temporary defensive position when deemed necessary. We do not employ risk management strategy on the portfolio of the Target Fund. However, the Management Company and/or the Target Fund Investment Manager will employ a risk management process in respect of the Target Fund that enables the Management Company to monitor and measure at any time the risk of the positions and their contribution to the overall risk profile of the Target Fund. Please refer to page 6 under the Investment objective and investment strategies of the Target

    for more information. We will employ risk management strategy at the Fund level, where we will continuously monitor the investment objective, performance and suitability of the Target Fund to ensure that it is in line with the investment objective of the Fund. If we are of the opinion that the Target Fund no longer meets the Fund bjective, we may, with your approval, replace the Target Fund with another CIS In such circumstances, we will withdraw our investment in

    http://www.ftidocuments.com/

  • 2

    the Target Fund and invest in another CIS on a staggered basis for a smooth transition, if the Target Fund imposes any conditions in relation to redemption of units or if the manager of the newly identified target fund exercises its discretion to apply anti dilution levy* in relation to the applications for units. Thus, the time frame required to perform the transition will depend on such conditions, if any, imposed by the Target Fund as well as any conditions associated with a dilution adjustment that may be made by the newly identified target fund. Hence during the transition pe fer from the stipulated investment objective, investment strategies and/or investment restrictions and limits. The Fund also may, with the concurrence of the Trustee, hold more than 5% of liquid assets on a temporary basis to meet withdrawal requests and to manage expenses of the Fund. Currently, the Fund invests in Class I (USD) of the Target Fund, which is an institutional share class denominated in USD launched on 27 May 2011. The Fund may change its entire investment into another class of the Target Fund (which must be denominated in the same currency) if we are of the opinion that the change is in the interest of the Unit holders. If we wish to effect such change, we will seek concurrence from the Trustee and you will be notified before implementation. Note: * Anti dilution levy is an allowance for fiscal and other charges that is added to the NAV per unit to reflect the costs of investing application monies in underlying assets of the Target Fund or newly identified target fund. Information on the Target Fund

    Company : Franklin Templeton Investment Funds

    Management Company : Franklin Templeton International Services S.à r.l.

    Investment Manager : Franklin Advisers, Inc.

    Regulatory authority : Commission de Surveillance du Secteur Financier

    At least 95%

    Up to 5%

    *Presently, the Target Fund is the Franklin Technology Fund.

    Asset Allocation

    ▪ At least 95% of the F NAV will be invested in the Target Fund; and

    ▪ s NAV will be invested in liquid assets for liquidity purposes.

    1.2. PERMITTED INVESTMENTS The Fund will invest in the following investments: ▪ One CIS (local or foreign) provided it is not a Fund-of-Funds or a Feeder Fund or any sub-fund of an umbrella fund which is

    a Fund-of-Funds or a Feeder Fund; ▪ Deposits and money market instruments; ▪ Derivative instruments, including but not limited to options, futures contracts, forward contracts and swaps for hedging

    purposes; and ▪ Any other form of investments as may be determined by us fro

    1.3. INVESTMENT RESTRICTIONS AND LIMITS The Fund is subject to the following investment restrictions and limits: CIS: The Fund must invest in one (1) CIS. Liquid assets: The Fund may invest up to 5% of the NAV of the Fund in liquid assets. The Fund may, with the concurrence of the Trustee, hold more than 5% of liquid assets on a temporary basis to meet withdrawal requests and to manage expenses of the Fund.

    1.4. APPROVALS AND CONDITIONS There is no exemption and/or variation to the SC Guidelines for the Fund.

    Principal Global Technology Fund

    Target Fund*

    Liquid assets

  • 3

    1.5. BORROWINGS OR FINANCING The Fund may not obtain cash financing or other assets in connection with its activities. However, the Fund may obtain cash financing for the purpose of meeting withdrawal requests for units and for short-term bridging requirements.

    1.6. SECURITIES LENDING Not applicable for the Fund.

    1.7. RISK FACTORS 1.7.1. GENERAL RISKS OF INVESTING IN A CIS

    Before investing, you should consider the following risk factors in addition to the other information set out in this Information Memorandum. Returns not guaranteed The investment of the fund is subject to market fluctuations and its inherent risk. There is NO GUARANTEE on the investment

    Market risk Market risk refers to the possibility that an investment will lose value because of a general decline in financial markets, due to economic, politi NAV. Inflation risk This is the risk that your investment in the fund may not grow or generate income at a rate that keeps pace with inflation. This would reduce your purchasing power even though the value of the investment in monetary terms has increased. Loan financing risk This risk occurs when you take a loan/financing to finance your investment. The inherent risk of investing with borrowed money includes you being unable to service the loan repayments. In the event units are used as collateral, you may be required to top-up your existing instalment if the prices of units fall below a certain level due to market conditions. Failing which, the units may be sold at a lower NAV per unit as compared to the NAV per unit at the point of purchase towards settling the loan. 1.7.2. SPECIFIC RISK RELATED TO THE FUND Currency risk You should be aware that currency risk is applicable to Class(es) (e.g. Class MYR) which is in a different currency than the base currency of the Fund (i.e. USD). The impact of the exchange rate movement between the base currency of the Fund and the currency denomination of the respective Class(es) may result in a depreciation of the value of your holdings as expressed in the currency denomination of the Class(es). As for a hedged Class, the Class itself provides mitigation to the currency risk arising from the difference between the currency denomination of the Class and the base currency of the Fund. While we aim to fully hedge the currency risk for a hedged Class, you should note that it may not entirely eliminate currency risk. In addition, you should note that, as a result of hedging, a hedged Class will not be able to enjoy the full benefits of the currency movement in the event of a favourable movement of the currency denomination of the hedged Class against the base currency of the Fund. You should also note that hedging incurs costs, in which will impact the NAV of a hedged Class. Manager risk Since the Fund invests into a CIS managed by another manager, the Management Company has absolute discretion over the

    stment technique and knowledge, operational controls and management. In the event of mismanagement of the Target Fund, the NAV of the Fund, which invests into the Target Fund, would be affected negatively. Although the probability of such occurrence is minute, should the situation arise, we reserve the right to seek for an alternative CIS that is consistent with the objective of this Fund, subject to your approval. Country risk As the Fund invests in the Target Fund which is domiciled in Luxeaffected by risks specific to Luxembourg. Changes to laws and regulations of Luxembourg may have an adverse impact on the Target Fund, and consequently the Fund. 1.7.3. SPECIFIC RISKS RELATED TO THE TARGET FUND As the Fund invests predominantly in the Target Fund, the Fund also assumes the risks associated with the Target Fund, which include but not limited to the following: Biotechnology, Communication and Technology Sectors risk Investment in the biotechnology, communication and technology sectors may present a greater risk and a higher volatility than investment in a broader range of securities covering different economic sectors. In addition, these sectors may be subject to

  • 4

    greater government regulation than other sectors and, as a result, changes to such government regulation may have a material adverse effect on these sectors. Such investments may therefore drop sharply in value in response to market, regulatory or research setbacks in addition to possible adverse effects from the competition of new market entrants, patent considerations and product obsolescence. Particularly within technology, short product cycles and diminishing profit margins are additional factors to consider when investing. Counterparty risk Counterparty risk is the risk to each party of a contract that the counterparty will fail to perform its contractual obligations and/or to respect its commitments under the term of such contract, whether due to insolvency, bankruptcy or other cause. When over-the-counter (OTC) or other bilateral contracts are entered into (inter alia OTC derivatives, repurchase agreements, security lending, etc.), the Company may find itself exposed to risks arising from the solvency of its counterparties and from their inability to respect the conditions of these contracts. Equity risk The value of the Target Fund that invests in equity and equity-related securities fluctuate daily. Prices of equities can be influenced and affected by many micro and macro factors such as economic, political, market, and issuer-specific changes. Such changes may adversely affect the value of the equities which can go up and down, regardless of company-specific performance. Additionally, different industries, financial markets, and securities can react differently to these changes. Such fluctuations of the Target -term as well. The risk that one or more companies in the Target

    portfolio performance in any given period and the Target Fund investing in equities could incur significant losses. Foreign Currency risk Since the Company values the portfolio holdings of the Target Fund in either US dollar, Japanese yen or euro, changes in currency exchange rates adverse to those currencies may affect the value of such holdings and the Target Fund's yield thereon. Since the securities, including cash and cash equivalents, held by the Target Fund may be denominated in currencies different from its base currency, the Target Fund may be affected favourably or unfavourably by exchange control regulations or changes in the exchange rates between such reference currency and other currencies. Changes in currency exchange rates may influence the value of the Target F and also may affect the value of dividends and interests earned by the Target Fund and gains and losses realised by the Target Fund. If the currency in which a security is denominated appreciates against the base currency, the price of the security could increase. Conversely, a decline in the exchange rate of the currency would adversely affect the price of the security. To the extent that the Target Fund seeks to use any strategies or instruments to hedge or to protect against currency exchange risk, there is no guarantee that hedging or protection will be achieved. Unless otherwise stated in the Target policy, there is no requirement that the Target Fund seeks to hedge or to protect against currency exchange risk in connection with any transaction. Currency management strategies may substantially change the Target Fun exposure to currency exchange rates and could result in losses to the Target Fund if currencies do not perform as the Investment Manager expects. In addition, currency management strategies, to the extent that they reduce the Target currency risks, may also reduce the Target rates. There is no assurance that the Investment

    use of currency management strategies will benefit the Fund or that they will be, or can be, used at appropriate times. Furthermore, there may not be perfect correlation between the amount of exposure to a particular currency and the amount of securities in the portfolio denominated in that currency. Investing in foreign currencies for purposes of gaining from projected changes in exchange rates, as opposed to hedging currency risks applicable to the Target gs, further increases the Target Fund posure to foreign investment losses. Investors should be aware of the fact that the Chinese Renminbi (RMB) is subject to a managed floating exchange rate based on market supply and demand with reference to a basket of currencies. Currently, the RMB is traded in two markets: one in Mainland China, and one outside Mainland China (primarily in Hong Kong). The RMB traded in Mainland China is not freely convertible and is subject to exchange controls and certain requirements by the government of Mainland China. The RMB traded outside Mainland China, on the other hand, is freely tradable. Whilst the RMB is traded freely outside Mainland China, the RMB spot, forward foreign exchange contracts and related instruments reflect the structural complexities of this evolving market. Accordingly, Alternative Currency Classes denominated in RMB may be exposed to greater foreign exchange risks. Growth Stocks risk Funds investing in growth stocks can be more volatile and may react differently to economic, political, market, and issuer-specific developments than the overall market. Historically, the prices of growth stocks have been more volatile than other securities, especially, over short term periods of time. Growth stocks may also be more expensive, relative to their earnings, than the market in general. As such, growth stocks can experience greater volatility in reaction to changes in earnings growth. Liquidity risk Liquidity risk takes two forms: asset side liquidity risk and liability side liquidity risk. Asset side liquidity risk refers to the inability of a Fund to sell a security or position at its quoted price or market value due to such factors as a sudden change in the perceived value or credit worthiness of the position, or due to adverse market conditions generally. Liability side liquidity risk refers to the inability of the Target Fund to meet a redemption request, due to the inability of the Target Fund to sell securities or positions in order to raise sufficient cash to meet the redemption request. Markets where the Target Ftraded could also experience such adverse conditions as to cause exchanges to suspend trading activities. Reduced liquidity due to these factors may have an adverse impact on the NAV of the Target Fund and, as noted, on the ability of the Target Fund to meet redemption requests in a timely manner.

  • 5

    Certain securities are illiquid due to a limited trading market, financial weakness of the issuer, legal or contractual restrictions on resale or transfer, or that are otherwise illiquid in the sense that they cannot be sold within seven days at approximately the price at which the Target Fund values them. Securities that are illiquid involve greater risk than securities with more liquid markets. Market quotations for such securities may be volatile and/or subject to large spreads between bid and ask prices. Illiquidity may have an adverse impact on market price and the Target necessary to meet the Target liquidity needs or in response to a specific economic event. Market risk The market values of securities owned by the Target Fund will go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors affecting individual issuers, securities markets generally or particular industries or sectors within the securities markets. The value of a security may go up or down due to general market conditions which are not specifically related to a particular issuer, such as real or perceived adverse economic conditions, changes in the general outlook for revenues or corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also go up or down due to factors that affect an individual issuer or a particular industry or sector, such as changes in production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that securities held by the Target Fund will participate in or otherwise benefit from the advance. Stock prices tend to go up and down more dramatically than those of debt securities. A slower-growth or recessionary economic environment could have an adverse effect on the prices of the various stocks held by the Target Fund. Smaller and Midsize Companies risk While smaller and midsize companies may offer substantial opportunities for capital growth, they also involve substantial risks and should be considered speculative. Historically, smaller and midsize company securities have been more volatile in price than larger company securities, especially over the short term. Among the reasons for the greater price volatility are the less certain growth prospects of smaller and midsize companies, the lower degree of liquidity in the markets for such securities, and the greater sensitivity of smaller and midsize companies to changing economic conditions. In addition, smaller and midsize companies may lack depth of management, be unable to generate funds necessary for growth or development, have limited product lines or be developing or marketing new products or services for which markets are not yet established and may never become established. Smaller and midsize companies may be particularly affected by interest rate increases, as they may find it more difficult to borrow money to continue or expand operations, or may have difficulty in repaying any loans which are floating-rate. These risks are typically increased for securities issued by smaller companies registered or performing a significant part of their activities in developing countries and Emerging Markets, especially as the liquidity of securities issued by companies in Emerging Markets may be substantially smaller than with comparable securities in industrialised countries.

    Past performance of the Target Fund is not an indication of its future performance.

    The above summary of risks does not purport to be an exhaustive list of all the risk factors relating to investments in the

    Fund and are not set out in any particular order of priority. You should be aware that investments in the Fund may be exposed to other risks from time to time. If in doubt, please consult your professional advisers for a better understanding of

    the risks.

  • 6

    2. TARGET FUND INFORMATION

    2.1. ABOUT FRANKLIN TECHNOLOGY FUND TARGET

    ) is incorporated in Luxembourg under the laws of the Grand Duchy of ssement à capital variable ("SICAV").

    The Company is registered on the official list of undertakings for collective investment in transferable securities pursuant to Part I of the Luxembourg law of 17 December 2010 relating to undertakings for collective investment, as may be amended from time to time (the "Law of 17 December 2010"). The Company qualifies as an Undertaking for Collective Investment in Transferable Securities ("UCITS") under Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009, as amended. The Company is structured as an "umbrella fund" comprising separate pools of assets each, a portfolio, including the Target Fund. The Company has appointed Franklin Templeton International Services S.à r.l., société à responsabilité limitée with its registered office at 8A, rue Albert Borschette, L-1246 Luxembourg, Grand-Duchy of Luxembourg as management company (the

    th the possibility to delegate part or all of such services to third-parties. In such capacity the Management Company is responsible for the general administrative functions of the Target Fund required by Luxembourg law, such as the calculation of the NAV of the shares and the maintenance of accounting records. The Management Company has delegated the investment management activities of the Target Fund to Franklin Advisers, Inc., which act as investment manager of the Target Fund and provide day-to-day management in respect of the investment and re-investment of the net assets of the Target Fund. J.P. Morgan Bank Luxemboursettlement and certain other associated services to the Company. The Depositary is a credit institution established in Luxembourg, whose registered office is situated at 6C, route de Trèves, L-2633 Senningerberg. This Information Memorandum describes the features of the Target Fund in accordance with the prospectus of the Target Fund (th tu and we recommend this document should be read in conjunction with the Prospectus and the relevant key investor information document. We take all reasonable efforts to ensure the accuracy that the disclosure in this Information Memorandum in relation to the Target Fund, including obtaining the confirmation from the Investment Manager. However, in the event of any inconsistency or ambiguity in relation to the disclosure, including any word or phrase used in this Information Memorandum regarding the Target Fund as compared to the Prospectus, the Prospectus shall prevail. Investment Objective and Investment Strategies of the Target Fund The Target The Target Fund invests at least two thirds of its net invested assets in equity securities of US and non US companies expected to benefit from the development, advancement, and use of technology and communication services and equipment. These may include, for example, companies in the following industries: ▪ communication and computing related outsourcing services; ▪ technology services, including computer software, data services, and Internet services; ▪ electronic technology, including computers, computer products, and electronic components; ▪ telecommunications, including networking, wireless, and wire-line services and equipment; ▪ media and information services, including the distribution of information and content providers; ▪ semiconductors and semiconductor equipment; and ▪ precision instruments. The Target Fund invests in securities of US and non US large, well-established companies, as well as small to medium-sized companies, that the Investment Manager believes provide good emerging growth opportunities. The Target Fund may also invest in equity or debt securities of any type of foreign or US issuer as well as in American, European or Global Depositary Receipts. The Target Fund uses a growth approach that employs intensive, bottom-up, fundamental research of companies. The Investment Manager also takes into consideration broad-based trends when considering the selection of investments. In general, the Investment Manager looks for companies it believes display, or will display, some of the following characteristics, among others: quality management; robust growth prospects; strong market positioning; high, or rising profit margins; and good return on capital investment. Benchmark The benchmark of the Target Fund may be found on the Key Investor Information Document (KIID) of the Target Fund available on the www.ftidocuments.com website.

  • 7

    Dividend Policy No distribution of dividends shall be made but the net income attributable will be reflected in the increased value of the shares.

    2.2. INVESTMENT AND BORROWING RESTRICTIONS OF THE TARGET FUND

    The investment restrictions imposed by Luxembourg law must be complied with by the Target Fund. Those restrictions in paragraph 1. e) below are applicable to the Company as a whole.

    2.2.1. INVESTMENT IN TRANSFERABLE SECURITIES AND LIQUID ASSETS

    a) The Company will invest in one or more of the following type of investments:

    (i) transferable securities and money market instruments admitted to or dealt on a regulated market within the meaning

    of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments;

    (ii) transferable securities and money market instruments dealt on another market in a member state of the European

    s regularly and is recognised and open to the public;

    (iii) transferable securities and money market instruments admitted to official listing on a stock exchange in a non-EU Member state or dealt on another market in a non-EU Member State, which is regulated, operates regularly and is recognised and open to the public;

    (iv) recently issued transferable securities and money market instruments, provided that the terms of issue include an undertaking that application will be made for admission to official listing on a stock exchange or on another regulated market, in the countries of the areas referred to under (i), (ii) and (iii) above, which operates regularly and is recognised and open to the public, and such admission is secured within a year of the purchase;

    (v) units of UCITS and/or other UCIs, whether situated in a Member State or not, provided that: ▪ such other UCIs have been authorised under the laws of any EU Member State or under laws which provide

    that they are subject to supervision considered by the Luxembourg supervisory authority to be equivalent to that laid down in EU law and that cooperation between authorities is sufficiently ensured,

    ▪ the level of protection for unitholders in such other UCIs is equivalent to that provided for unitholders in a UCITS, and in particular that the rules on assets segregation, borrowing, lending, and uncovered sales of transferable securities and money market instruments are equivalent to the requirements of Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009,

    ▪ the business of such other UCIs is reported in half-yearly and annual reports to enable an assessment of the assets and liabilities, income and operations over the reporting period,

    ▪ no more than 10% of the assets of the UCITS or of the other UCIs, whose acquisition is contemplated, can, according to their constitutional documents, in aggregate be invested in units of other UCITS or other UCIs;

    (vi) deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no

    more than 12 months, provided that the credit institution has its registered office in an EU Member State or, if the registered office of the credit institution is situated in a non-Member State, provided that it is subject to prudential rules considered by the Luxembourg supervisory authority as equivalent to those laid down in EU law;

    (vii) financial derivative instruments, including equivalent cash-settled instruments, dealt on a regulated market referred

    to in subparagraph (i) to (iv) above, and/or financial derivative instruments dealt over-the-coprovided that:

    ▪ the underlying consists of instruments covered under 1. a), financial indices, interest rates, foreign exchange rates or currencies, in which the Target Fund may invest according to its investment objectives,

    ▪ the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the Luxembourg supervisory authority,

    ▪ the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by an offsetti

    (viii) money market instruments other than those dealt on a regulated market and which fall under 1. a), if the issue or the issuer of such instruments are themselves regulated for the purpose of protecting investors and savings, and provided that such instruments are:

    ▪ issued or guaranteed by a central, regional or local authority or by a central bank of a Member State, the European Central Bank, the European Union or the European Investment Bank, a non-Member State or, in case of a Federal State, by one of the members making up the federation, or by a public international body to which one or more Member States belong, or

    ▪ issued by an undertaking any securities of which are dealt on regulated markets referred to above, or ▪ issued or guaranteed by an establishment subject to prudential supervision in accordance with criteria

    defined by the EU law, or by an establishment which is subject to and complies with prudential rules considered by the Luxembourg supervisory authority to be at least as stringent as those laid down by EU law, or

    ▪ issued by other bodies belonging to the categories approved by the Luxembourg supervisory authority provided that investments in such instruments are subject to investor protection equivalent to that laid down in the first, the second or the third indent and provided that the issuer is a company whose capital and

  • 8

    reserves amount to at least 10 million euro and which presents and publishes its annual accounts in accordance with the fourth directive 78/660/EEC, is an entity which, within a group of companies which include one or several listed companies, is dedicated to the financing of the group or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line.

    b) The Company may invest up to 10% of the net assets of the Target Fund in transferable securities and money market instruments other than those referred to in (a) above;

    c) The Target Fund may hold ancillary liquid assets;

    d) (i) The Target Fund may invest no more than 10% of its net assets in transferable securities and money market instruments issued by the same body. The Target Fund may not invest more than 20% of its net assets in deposits made with the same body. The risk exposure to a counterparty of the Target Fund in an OTC derivative transaction may not exceed 10% of its assets when the counterparty is a credit institution referred to in 1. a) (vi) above or 5% of its net assets in other cases. (ii) The total value of the transferable securities and money market instruments held in the issuing bodies in the Target Fund invests more than 5% of its net assets must not exceed 40 % of the value of its assets. This limitation does not apply to deposits and OTC derivative transactions made with financial institutions subject to prudential supervision. Notwithstanding the individual limits laid down in paragraph 1. d) (i), the Target Fund may not combine:

    ▪ investments in transferable securities or money market instruments issued by a single body, ▪ deposits made with a single body, and/or ▪ exposures arising from OTC derivative transactions undertaken with a single body,

    in excess of 20% of its net assets. (iii) The limit laid down under the first sentence of paragraph 1. d) (i) above shall be of 35% where the Target Fund has invested in transferable securities or money market instruments issued or guaranteed by a Member State, by its local authorities, by a non-Member State or by public international bodies of which one or more Member States are members. (iv) The limit laid down under the first sentence of paragraph 1. d) (i) above shall be of 25% for bonds issued by a credit institution which has its registered office in a Member State and is subject by law, to special public supervision designed to protect bondholders. In particular, sums deriving from the issue of these bonds must be invested in conformity with the law in assets which, during the whole period of validity of the bonds, are capable of covering claims attaching to the bonds and which, in case of bankruptcy of the issuer, would be used on a priority basis for the repayment of principal and payment of the accrued interest. If the Target Fund invests more than 5% of its net assets in the bonds above and issued by one issuer, the total value of such investments may not exceed 80% of the value of the assets of the Target Fund. (v) The transferable securities and money market instruments referred to in paragraphs 1. d) (iii) and 1. d) (iv) are not included in the calculation of the limit of 40% referred to in paragraph 1. d) (ii). The limit set out above under 1. d) (i), (ii), (iii) and (iv) may not be combined, and thus investments in transferable securities or money market instruments issued by the same body, in deposits or derivative instruments made with this body carried out in accordance with section 1. d) (i), (ii), (iii) and (iv) may not exceed a total of 35% of the net assets of the Target Fund. Companies which are included in the same group for the purposes of consolidated accounts, as defined in accordance with Directive 83/349/EEC or in accordance with recognised international accounting rules, are regarded as a single body for the purpose of calculating the limits contained under 1. d). The Target Fund may cumulatively invest up to 20% of its net assets in transferable securities and money market instruments within the same group. (vi) Without prejudice to the limits laid down in paragraph e), the limits laid down in this paragraph d) shall be 20% for investments in shares and/or bonds issued by the same body when the aim of the Target Fund's investment policy is to replicate the composition of a certain stock or bond index which is recognised by the Luxembourg supervisory authority, provided ▪ the composition of the index is sufficiently diversified, ▪ the index represents an adequate benchmark for the market to which it refers, ▪ it is published in an appropriate manner.

    The limit laid down in the subparagraph above is raised to 35% where it proves to be justified by exceptional market conditions in particular in regulated markets where certain transferable securities or money market instruments are highly dominant provided that investment up to 35% is only permitted for a single issuer. (vii) where the Target Fund has invested in accordance with the principle of risk spreading in transferable securities and money market instruments issued or guaranteed by any EU Member State, its local authorities, or public international bodies of which one or more EU Member States are members, by any other State of the OECD, by Singapore or any member state of the G20, the Company may invest 100% of the assets of the Target Fund in such securities provided that the Target Fund must hold securities from at least six different issues and securities from one issue must not account for more than 30% of the Target Fund's net assets.

  • 9

    e) The Company or the Target Fund may not invest in voting shares of companies allowing it to exercise a significant influence in the management of the issuer. Further, the Company may acquire no more than (i) 10% of the non-voting shares of any single issuing body, (ii) 10% of the debt securities of any single issuing body, (iii) 25% of the units of any single collective investment undertaking, (iv) 10% of the money market instruments of any single issuing body. However, the limits laid down under (ii), (iii) and (iv) may be disregarded at the time of acquisition if, at that time, the gross amount of the bonds or of the money market instruments or the net amount of the instruments in issue cannot be calculated. The limits under this section e) shall not apply to (i) transferable securities or money market instruments issued or guaranteed by a Member State, its local authorities, or public international bodies of which one or more Member States are members or by any other State, nor to (ii) shares held by the Company in the capital of a company incorporated in a State which is not a Member State investing its assets mainly in the securities of issuing bodies having their registered offices in that State, where under the legislation of that State such a holding represents the only way in which the Company can invest in the securities of issuing bodies of that State, provided that, however, the Company, in its investment policy, complies with the limits laid down in Articles 43 and 46 and in paragraphs (1) and (2) of Article 48 of the Law of 17 December 2010.

    f) (i) Unless otherwise provided in the investment policy of the Target Fund, the Target Fund will not invest more than 10% of its net assets in UCITS and other UCIs. (ii) In the case restriction f) (i) above is not applicable to the Target Fund, as provided in its investment policy, the Target Fund may acquire units of UCITS and/or other UCIs referred to in paragraph 1. a) (v), provided that no more than 20% of the Target Fund's net assets be invested in the units of a single UCITS or other UCI. For the purpose of the application of this investment limit, each compartment of a UCITS and/or other UCI with multiple compartments is to be considered as a separate issuer provided that the principle of segregation of the obligations of the various compartments vis-à-vis third parties is ensured. (iii) Investments made in units of UCIs other than UCITS may not in aggregate exceed 30% of the net assets of the Target Fund. (iv) When the Target Fund invests in the units of UCITS and/or other UCIs linked to the Company by common management or control, or by a substantial direct or indirect holding, no subscription or redemption fees may be charged to the Company on account of its investment in the units of such other UCITS and/or UCIs. In respect of the Target Fund's investments in UCITS and other UCIs linked to the Company as described in the preceding paragraph, the total management fee (excluding any performance fee, if any) charged to the Target Fund and each of the UCITS or other UCIs concerned shall not exceed 2% of the value of the relevant investments. The Company will indicate in its annual report the total management fees charged both to the Target Fund and to the UCITS and other UCIs in which the Target Fund has invested during the relevant period. (v) The Company may acquire no more than 25% of the units of the same UCITS and/or other UCI. This limit may be disregarded at the time of acquisition if at that time the gross amount of the units in issue cannot be calculated. In case of a UCITS or other UCI with multiple compartments, this restriction is applicable by reference to all units issued by the UCITS/UCI concerned, all compartments combined. (vi) The underlying investments held by the UCITS or other UCIs in which the Target Fund invests do not have to be considered for the purpose of the investment restrictions set forth under 1. d) above.

    g) The Target Fund may subscribe, acquire and/or hold shares to be issued or issued by one or more other funds without the Target Fund being subject to the requirements of the law of 10 August 1915 on commercial companies (as amended) with respect to the subscription, acquisition and/or the holding by a company of its own shares, under the conditions however that: (i) The destination fund does not, in turn, invest in the Target Fund invested in this destination fund; and (ii) No more than 10% of the assets that the destination fund whose acquisition is contemplated may be invested in

    units of UCITS and/or other UCIs; and (iii) Voting rights, if any, attaching to the shares of the destination fund are suspended for as long as they are held by

    the Target Fund concerned and without prejudice to the appropriate processing in the accounts and the periodic reports; and

    (iv) In any event, for as long as these shares are held by the Target Fund, their value will not be taken into consideration for the calculation of the net assets of the Target Fund for the purposes of verifying the minimum threshold of the net assets imposed by the Law of 17 December 2010; and

    (v) There is no duplication of management/entry or sale charges between those at the level of the Target Fund having invested in the destination fund, and this destination fund.

    h) The Company may not (i) acquire for the benefit of the Target Fund securities which are partly paid or not paid or involving liability (contingent or otherwise) unless according to the terms of issue such securities will or may at the option of the holder become free of such liabilities within one year of such acquisition and (ii) underwrite or subunderwrite securities of other issuers for the Target Fund.

    i) The Company may not purchase or otherwise acquire any investment in which the liability of the holder is unlimited.

  • 10

    j) The Company may not purchase securities or debt instruments issued by the Investment Managers or any connected person or by the Management Company.

    k) The Company may not purchase any securities on margin (except that the Company may, within the limits set forth in clause 2. e) below, obtain such short term credit as may be necessary for the clearance of purchases or sales of securities) or make uncovered sales of transferable securities, money market instruments or other financial instruments referred to above; except that the Company may make initial and maintenance margin deposits in respect of futures and forward contracts (and options thereon).

    2.2.2. INVESTMENT IN OTHER ASSETS a) The Company may not purchase real estate, nor acquire any options, rights or interest in respect thereof, provided

    that the Company may invest for the account of the Target Fund in securities secured by real estate or interest therein or in securities of companies investing in real estate.

    b) The Company may not make investments in precious metals or certificates representing them.

    c) The Company may not enter into direct commodities transactions or commodity contracts, except that the Company may, in order to hedge risk, enter into financial futures on such transactions within the limits laid down in clause 3 below.

    d) The Company may not make loans to other persons or act as a guarantor on behalf of third parties or assume, endorse or otherwise become directly or contingently liable for, or in connection with, any obligation or indebtedness or any person in respect of borrowed monies, provided that for the purpose of this restriction: (i) the acquisition of bonds, debentures or other corporate or sovereign debt obligations (whether wholly or partly

    paid) and investment in securities issued or guaranteed by a member country of the OECD or by any supranational institution, organization or authority, short-term commercial paper, certificates of deposit and bankers' acceptances of prime issuers or other traded debt instruments shall not be deemed to be the making of a loan; and

    (ii) the purchase of foreign currency by way of a back-to-back loan shall not be deemed to be the making of a loan.

    e) The Company may not borrow for the account of the Target Fund, other than amounts which do not in aggregate exceed 10% of the net assets of the Target Fund, taken at market value and then only as a temporary measure. The Company may, however, acquire foreign currency by means of a back-to-back loan.

    f) The Company may not mortgage, pledge, hypothecate or in any manner transfer as security for indebtedness, any of the securities or other assets of the Target Fund, except as may be necessary in connection with the borrowings mentioned in clause e) above. The purchase or sale of securities on a when-issued or delayed-delivery basis, and collateral arrangements with respect to the writing of options or the purchase or sale of forward or futures contracts are not deemed the pledge of the assets.

    2.2.3. FINANCIAL DERIVATIVE INSTRUMENTS

    The Company may use financial derivative instruments for investment, hedging and efficient portfolio management purposes, within the limits of the Law of 17 December 2010. Under no circumstances shall the use of these instruments and techniques cause the Target Fund to diverge from its investment policy. The Target Fund may invest in financial derivative instruments within the limits laid down in clause 1. a) (vii) provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down in clause 1. d) (i) to (v). When the Target Fund invests in index-based financial derivative instruments, these investments do not have to be combined in respect of the limits laid down in clause 1. d). When a transferable security or money market instrument embeds a derivative, the latter must be taken into account when complying with the requirements of this restriction. The Company on behalf of the Target Fund may only choose swap counterparties that are first class financial institutions selected by the Board of Directors and that are subject to prudential supervision and belonging to the categories approved by the Commission de Surveillance du Secteur Financier CSSF for the purposes of OTC derivative transactions and specialised in these types of transactions. As the case may be, collateral received by the Target Fund in relation to OTC derivative transactions may offset net exposure by counterparty provided it meets a range of standards, including those for liquidity, valuation, and issuer credit quality. Collateral primarily consist of cash and highly rated sovereign bonds. Collateral value is reduced by a percentage (a ich provides for short term fluctuations in the value of the collateral. Net exposures are calculated daily by counterparty and subject to the terms of the agreements, including a minimum transfer amount, collateral levels may fluctuate between the fund and the counterparty depending on the market movement of the exposure. Non-cash collateral received is not sold, reinvested or pledged. Cash collateral may be reinvested in a manner consistent with the provisions established in the Credit Support

    the International Swaps and Mwith the relevant counterparty and with the risk in (a) shares of the Prospectus for the Target Fund or units issued by short term money market undertakings for collective investment as defined in the Guidelines on a Common Definition of European Money Market Funds, (b) deposits with credit institutional having its registered office in a Member State or with a credit institution situated in a non-Member State provided that it is subject to prudential rules considered by the CSSF as equivalent to those laid down in EU law, (c) high quality

  • 11

    government bonds that are deemed eligible collateral according to the terms of the CSA of the ISDA Master Agreement, and (d) reverse repurchase agreement transactions provided the transactions are with credit institutions subject to the prudential supervision and the Company may recall at any time the full amount of cash on accrued basis. The Company has policies with respect to the reinvestment of collateral (specifically, that derivatives or other instruments that may contribute to leverage may not be used) such that it would not impact the Global Exposure calculation. In accordance with the criteria laid down in the precedent paragraph, the Target Fund may be fully collateralised in different transferable securities and money market instruments issued or guaranteed by any EU Member State, its local authorities, or public international bodies of which one or more EU Member States are members, by any other State of the OECD, by Singapore or any member state of the G20, provided that such Fund holds securities at least from six different issues and that any single issue must not account for more t assets. The Global Exposure relating to financial derivative instruments is calculated taking into account the current value of the underlying assets, the counterparty risk, foreseeable market movements and the time available to liquidate the positions. The Company shall ensure that the Global Exposure of the Target Fund relating to financial derivative instruments does not exceed the total net assets of the Target Fund. The Target overall risk exposure shall consequently not exceed 200% of its total net assets. In addition, this overall risk exposure may not be increased by more than 10% by means of temporary borrowings (as referred to in clause 2. e) above) so that it may not exceed 210% of any Fund's total net assets under any circumstances. The Target Fund apply either the Value-at-Risk (VaR) or the Commitment Approach to calculate their Global Exposure, whichever is deemed to be appropriate. When the investment objective of the Target Fund indicates a benchmark against which the performance might be compared, the method used to calculate the Global Exposure may consider a different benchmark than the one mentioned for performance or volatility purposes in the Target Fu stment objective. Currency Hedging The Company may, in respect of the Target Fund, for the purpose of hedging currency risks, have outstanding commitments in forward currency contracts, currency futures, written call options and purchased put options on currencies and currency swaps either quoted on an exchange or dealt in on a regulated market or entered into with highly rated financial institutions. Subject to the implementation of the currency hedging techniques below, commitments in one currency may not exceed the aggregate value of securities and other assets held by the Target Fund denominated in such currency (or other currencies that fluctuate in a substantially similar manner to such currency). In this context, the Company may, in respect of the Target Fund, engage in the following currency hedging techniques: ▪ hedging by proxy, i.e. a technique whereby the Target Fund effects a hedge of the reference currency of the Target Fund

    (or benchmark or currency exposure of the assets of the Target Fund) against exposure in one currency by instead selling (or purchasing) another currency closely related to it, provided however that these currencies are indeed likely to fluctuate in the same manner. Guidelines followed in determining that one currency moves in a substantially similar manner to another currency include the following: i) the correlation of one currency to another currency is proven over a significant period of time to be over 85%; ii) the two currencies are, by explicit government policy, scheduled to participate in European Monetary Union on a set future date (which would include using the euro itself as a proxy for hedging bond positions denominated in other currencies scheduled to become part of the euro on a set future date); and iii) the currency used as the hedging vehicle against the other currency is part of a currency basket against which the central bank for that other currency explicitly manages its currency within a band or corridor that is either stable or sloping at a predetermined rate.

    ▪ cross hedging, i.e. a technique whereby the Target Fund sells a currency to which it is exposed and purchases more of

    another currency to which the Target Fund may also be exposed, the level of the base currency being left unchanged, provided however that all such currencies are currencies of the countries which are at that time within the Target benchmark or investment policy and the technique is used as an efficient method to gain the desired currency and asset exposures.

    ▪ anticipatory hedging, i.e. a technique whereby the decision to take a position on a given currency and the decision to have

    some securities held in the Target vided however that the currency which is bought in anticipation of a later purchase of underlying portfolio securities is a currency associated with those countries which are within the Target

    Total return swaps transactions The Target Fund which is authorised as per its investment policy to invest in total return swaps but which does not enter into such transactions as of the date of this Prospectus may however enter into total return swaps transactions provided that the maximum proportion of the net assets of that Fund that could be subject to such transactions does not exceed 30% and that the relevant section relating to the Target Fund is updated accordingly at the next available opportunity. In such cases, the counterparty to the transaction will be a counterparty approved and monitored by the Management Company or the Investment Manager. At no time will a counterparty in a transaction have discretion over the composition or the management of the Target Fund's investment portfolio or over the underlying of the total return swap. While there are no predetermined legal status or geographical criteria applied in the selection of the counterparties, these elements are typically taken into account in the selection process. The following types of assets can be subject to total return swaps: equity, currency and/or commodity indices (such as, but not limited to Morgan Stanley Balanced Ex Energy Index, Morgan Stanley Balanced Ex Grains Index, Morgan Stanley Balanced Ex

  • 12

    Industrial Metals Index, Morgan Stanley Balanced Ex Precious Metals Index or Morgan Stanley Balanced Ex Softs Index), volatility variance swaps as well as fixed income, most notably high yield corporate and bank loan related exposures. The risk of counterparty default and the effect on investors returns are more fully described under section "Risk Considerations" of the Prospectus.. Where the Target Fund enters into total return swaps transactions as of the date of this Prospectus, the expected proportion of the Target net assets that could be subject to total return swaps transactions shall be calculated as the sum of notionals of the derivatives used and is set out in the "Fund information, objectives and investment policies" section of the Target Fund. If and when the Target Fund enters into total return swaps transactions, it is for the purpose of generating additional capital or income and/or for reducing costs or risks. All revenues arising from total return swaps transactions will be returned to the Target Fund, and the Management Company will not take any fees or costs out of those revenues additional to the investment management fee for the Target Fund as set out under section "Investment Management Fees" of the Prospectus.

    2.2.4. USE OF TECHNIQUES AND INSTRUMENTS RELATING TO TRANSFERABLE SECURITIES AND MONEY MARKET

    INSTRUMENTS a) Repurchase transactions and securities lending transactions

    (i) Types and purpose

    To the maximum extent allowed by, and within the limits set forth in, the Law of 17 December 2010 as well as any present or future related Luxembourg laws or implementing regulations, circulars and the Luxembourg supervisory authority's positions (the "Regulations"), in particular the provisions of (i) article 11 of the Grand-Ducal regulation of 8 February 2008 relating to certain definitions of the Luxembourg Law of 20 December 2002 on undertakings for collective investment and of (ii) CSSF Circulars 08/356 and 14/592, the Target Fund may for the purpose of generating additional capital or income or for reducing costs or risks (A) enter, either as purchaser or seller, into optional as well as non-optional repurchase transactions and (B) engage in securities lending transactions. As the case may be, collateral received by the Target Fund in relation to any of these transactions may offset net exposure by the counterparty if it complies with the criteria set out in applicable laws, regulations and circulars issued by the CSSF from time to time notably in terms of liquidity, valuation, issuer credit quality, correlation, risks linked to the management of collateral and enforceability as further set out below. The form and nature of the collateral will primarily consist of cash and highly rated sovereign fixed income securities that meets particular ratings criteria and will be equal to or greater than the value of the securities lent. Eligible collateral for securities lending transactions would be negotiable debt obligations (collectively "AA - Level Sovereign Bonds") issued by governments (such as Australia, Belgium, Canada, Denmark, France, Germany, the Netherlands, Norway, New Zealand, Sweden, Switzerland, the United States, the United Kingdom, etc.), having a credit rating of at least AA- respectively and denominated in the official currency of the relevant country and issued on the relevant domestic market (but excluding derivatives of other securities and inflation-linked securities). The collateral received by the Company in respect of repurchase agreements transactions may be US Treasury bills or US government agency bonds supported by the full faith and credit of the US government. Acceptable tri-party collateral to the Custodial Undertaking in connection with the Master Repurchase agreement include, US Treasuries (Bill, Notes, and Bonds), and the following Government Sponsored Agencies: Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB), Federal Home Loan Mortgage Corp (FHLMC), and Federal Farm Credit System (FFCB). The collateral shall have a final maturity of no more than 5 years from the date the repurchase transaction is entered. The value of the securities shall also be equal to, or greater than, 102% of the amount of the repurchase transaction. Collateral value is reduced by a percentage (a "haircut") which provides for short term fluctuations in the value of the collateral as further detailed in the table below in section (iv) Collateral. Net exposures are calculated daily by the counterparty and subject to the terms of the agreements, including a minimum transfer amount, collateral levels may fluctuate between the Fund and the counterparty depending on the market movement of the exposure. Non-cash collateral received is not sold, reinvested or pledged. Cash collateral received by the Target Fund in relation to any of these transactions may be reinvested in a manner consistent with the investment objectives of the Target Fund and with the risk diversification requirements detailed in Appendix B "Investment Restrictions" in (a) shares or units issued by short term money market undertakings for collective investment as defined in the Guidelines on a Common Definition of European Money Market Funds, (b) deposits with credit institutional having its registered office in a Member State or with a credit institution situated in a non-Member State provided that it is subject to prudential rules considered by the CSSF as equivalent to those laid down in EU law, (c) high quality government bonds, and (d) reverse repurchase agreement transactions provided the transactions are with credit institutions subject to the prudential supervision and the Company may recall at any time the full amount of cash on accrued basis. The Company has policies with respect to the reinvestment of collateral (specifically, that derivatives or other instruments that may contribute to leverage may not be used) such that it would not impact the Global Exposure calculation. In accordance with the criteria laid down in the precedent paragraph, the Target Fund may be fully collateralised in different transferable securities and money market instruments issued or guaranteed by any EU Member State, its local authorities, or public international bodies of which one or more EU Member States are members, by any other State of the OECD, by Singapore or any member state of the G20, provided that the Target Fund holds securities at least from six different issues and that any single issue must not account for more than 30% of the Target

  • 13

    (ii) Limits and conditions

    − Securities lending transactions Unless otherwise provided in the Target the Target Fund may utilise up to 50% of its assets for securities lending transactions. The volume of the securities lending transactions of the Target Fund shall be kept at an appropriate level or the Target Fund shall be entitled to request the return of the securities lent in a manner that enables it, at all times, to meet its redemption obligations and that these transactions do not jeopardise the management of the Target Fassets in accordance with its investment policy. The counterparties to securities lending transactions must have a minimum credit rating of A- actions. While there are no predetermined legal status or geographical criteria applied in the selection of the counterparties, these elements are typically taken into account in the selection process. When entering into securities lending transactions, the Target Fund must also comply with the following requirements:

    (i) The borrower in a securities lending transaction must be subject to prudential supervision rules considered by the CSSF as equivalent to those prescribed by EU law;

    (ii) The Target Fund may lend securities to a counterparty directly (A) itself or (B) as part of a standardised lending system

    organised by a recognised clearing house or by a first-class financial institution subject to prudential supervision rules considered by the CSSF as equivalent to those provided by EU law and specialised in this type of transaction. Goldman Sachs International Bank and JPMorgan Chase Bank, N.A., London Branch, shall act as lending agents for securities lending on behalf of the Target Fund;

    (iii) The Target Fund may only enter into securities lending transactions provided that it is entitled at any time under the terms of

    the agreement to request the return of the securities lent or to terminate the agreement; As of the date of this Prospectus, equity securities is the only type of assets subject to securities lending transactions. Where the Target Fund enters into securities lending transactions as of the date of this Prospectus, the expected proportion of the Target net assets that could be subject to securities lending transactions is set out in the "Fund information, objectives and investment policies" section of the Target Fund. The Target Fund that does not enter into securities lending transactions as of the date of this Prospectus may however enter into securities lending transactions provided that the maximum proportion of the net assets of the Target Fund that could be subject to such transactions does not exceed 50% and that the relevant section relating to the Target Fund is updated accordingly at the next available opportunity. The risks related to the use of securities lending transactions and the effect on investors returns are more fully described under section "Risk Considerations" of the Prospectus of the Target Fund.

    − Repurchase and reverse repurchase agreement transactions Unless otherwise provided in the Target the Target Fund may utilise up to 50% of its assets for repurchase agreement transactions, but the Target pect of repurchase agreement transactions is limited to (i) 10% of its assets where the counterparty is a credit institution having its registered office in an EU Member State or subject to equivalent prudential rules, and (ii) 5% of its assets in other cases. The counterparties to repurchase agreement transactions must have a minimum credit rating of A- or better, as rated Fitch, at the time of the transactions. While there are no predetermined legal status or geographical criteria applied in the selection of the counterparties, these elements are typically taken into account in the selection process. The volume of the repurchase agreement transactions of the Target Fund shall be kept at a level such that the Target Fund is able, at all times, to meet its redemption obligations towards shareholders. Further, the Target Fund must ensure that, at maturity of the repurchase agreement transactions, it has sufficient assets to be able to settle the amount agreed with the counterparty for the restitution of the securities to the Target Fund. Any incremental income generated from repurchase agreement transactions will be accrued to the Target Fund. The following types of assets can be subject to repurchase agreement transactions: sovereign debt, corporate and government bonds, non-agency residential mortgage-backed securities and commercial mortgage-backed securities, possibly other asset-backed securities. Where the Target Fund enters into repurchase agreement transactions as of the date of this Prospectus, the expected proportion of the Target net assets that could be subject to repurchase agreement transactions is set out in the "Fund information, objectives and investment policies" section of the Target Fund. The Target Fund that does not enter into repurchase agreement transactions as of the date of this Prospectus may however enter into repurchase agreement transactions provided that the maximum proportion of the net assets of the Target Fund that could be subject to such transactions does not exceed 50% and that the Target Fund policy is updated accordingly at the next available opportunity. The following types of assets can be subject to reverse repurchase agreement transactions: sovereign debt, corporate and government bonds, non-agency residential mortgage-backed securities and commercial mortgage-backed securities, possibly other asset-backed securities. Where the Target Fund enters into reverse repurchase agreement transactions as of the date of this Prospectus, the expected proportion of the Target F net assets that could be subject to reverse repurchase agreement transactions is set out in th